Sheffield-King Milling Co. v. Jacobs

RosenbeRRY, J. Some doubt exists as to whether or not the answer raises any issue. Giving, to the allegations of the answer every reasonable intendment and the most liberal construction, we are constrained to hold that the allegation that there was no damage suffered by the plaintiff is equivalent to an allegation that the agreed measure of damages is unreasonable, and bears no relation to the actual damages suffered by the plaintiff, and the question of whether or not the agreed damages are in the nature of liquidated damages or a penalty is presented. This is a most liberal construction, and one which we adopt the more readily for the reason that without objection the case has been argued and presented upon both sides upon that theory. While the plaintiff in its brief stated that it contends that the simple allegation in the answer that respondent has in fact suffered no damage is not sufficient to put in issue the question of whether or not the contract is valid as providing for liquidated damages, or invalid as providing for a penalty, it assumes for the purpose of argument that that is the question before the court, and no other question is argued. The defendant contends that the sum of $894.83 cannot be considered otherwise than as a penalty and cites Hath — 398 — away v. Lynn, 75 Wis. 186, 43 N. W. 956; J. G. Wagner Co. v. Cawker, 112 Wis. 532, 88 N. W. 599; Berrinkott v. Traphagen, 39 Wis. 219; Davis v. La Crosse H. Asso. 121 Wis. 579, 99 N. W. 351; Madison v. American S. E. Co. 118 Wis. 480, 95 N. W. 1097; Seeman v. Biemann, 108 Wis. 365, 84 N. W. 490. The courts of this and other states have gone a long way in protecting parties from their own contracts, and this upon the theory that a harsh and unreasonable contract will not be enforced when a party may be relieved therefrom within the established rules of law; but a party asking relief from a contract freely entered into, in the absence of fraud or overreaching, must bring himself within the field of judicial relief; and the fact that, as in this case, the result is harsh and burdensome, is not by itself sufficient to do that. Courts will ascertain for themselves the real intent of the parties to the contract, and are not bound by the assertions of the parties themselves as to that intent, and the stipulated damages must appear to be grossly in excess of the actual damages, or have no relation thereto, before the court can say within established principles that the damages stipulated are a penalty. We take it that these fundamental principles are well established, and certainly are recognized in the Wisconsin cases above cited. See, also, 1 Sutherland, Damages (4th ed.) § 283 and cases cited. The intent of the parties in this case is made clear by the recitals of the contract itself, and particularly so when they are considered in relation to the complicated and complex situation with which the contract deals. The contract is not one for the sale and delivery of an article to be procured in the open market and delivered to the purchaser. It is a contract for the manufacture of a commodity from a basic raw material. Actual damages could not therefore be established by showing the difference between the contract price of Gold Mine flour and the market price, assuming — 399 — that it had an established market price. The inquiry would therefore involve purchase and storage of wheat, cost of manufacture into flour, and many other subsidiary questions. While, as this court has said, “in determining whether an amount agreed upon as damages was intended as liquidated damages or as a penalty, rules of language are ignored, and the expressed intent of parties is made to give way to the equity of the particular case, having due regard to precedents,” nevertheless, such a rule is applied only where damages may be readily computed and the “stipulated damages, so called, are largely in excess of the actual damages.” Seeman v. Biemann, 108 Wis. 365, 374, 84 N. W. 490; 1 Sutherland, Damages (4th ed.) § 283. In a case such as this, which is clearly one where the damages are difficult, if not almost impossible, to ascertain, to require a party to establish the actual damages as a condition precedent to his right to recover stipulated damages is in practical effect to refuse legal effect to his contract. The courts are now strongly “inclined to allow parties to make their own contracts and to carry out their intentions even where it would result in the recovery of an amount stated as liquidated damages, upon proof of violation of the contract, and without proof of the damages actually sustained.” U. S. v. Bethlehem S. Co. 205 U. S. 105, 27 Sup. Ct. 450. It is argued that in the absence of an allegation in the complaint that the plaintiff had purchased No. 1 Northern wheat, and in the absence of an allegation that the article to be delivered was to be manufactured from No. 1 Northern wheat, the contract is speculative and ought not to be enforced. Reference to the daily market reports, ás well as to the proclamations of the President of the United States, issued February 21, 1918, and September 2, 1918, shows that No. 1 Northern wheat is one of the standard grades of wheat, to which in the primary markets of the country the prices of other grades of wheat bear a direct relation, and — 400 — the court may take judicial notice of the fact that the grade of wheat specified in the contract is one of the standard grades, and that the prices of other grades have a direct, although perhaps a varying, relation ■ to it. The contract does not specify out of what particular grade of wheat the flour was to be manufactured. It is supposable at least that it might be made out of different grades purchased at different times, and depend to some extent upon the process of manufacture. It is certain that the flour was to be made of wheat, and that the price of all wheat bears a definite relation to the price of No. 1 Northern. It is because of the fact that a manufacturer may not be able to trace into the manufactured product agreed to be delivered, specific purchases of material, that proof of actual damages becomes difficult and the stipulation of parties as to damages is permitted to stand in cases of this kind. The difficulties of the situation are well illustrated in the case of Erie B. Co. v. Hubbard M. Co. 217 Fed. 759; Russell Miller M. Co. v. Bastasch, 70 Oreg. 475, 142 Pac. 355; River S. Co. v. Atlantic Mills, 155 Fed. 466. While tlie complaint does not allege that the parties have purchased any particular lot of wheat for the manufacture of the flour agreed to be delivered to the defendant, it does allege that the plaintiff was ready, able, and willing to perform and carry out its part of the contract, and that it had performed the same except in so far as performance thereof had been prevented by' the conduct of the defendant. This must be taken to mean/as it certainly does mean, that the plaintiff had on hand the raw materials out of which the flour was to be manufactured and delivered. It will not do for the defendant to enter into a contract such as the one set out in the complaint, wait until time of delivery, and, when performance is tendered, refuse to accept it, and in the light of subsequent developments violate the terms of his contract and then take that position which is most advantageous to himself. The validity of — 401 — a contract is to be determined as of the date of its execution, and a contract valid when made cannot be rendered invalid even by legislative action. Superior v. Douglas Co. Tel. Co. 141 Wis. 363, 122 N. W. 1023. It is the situation of the parties at the time of the inception of the contract that governs. Davis v. La Crosse H. Asso. 121 Wis. 579, 99 N. W. 351. While the damages recoverable under the contract in this case are large and appear grossly disproportionate to the actual damages which the plaintiff may have suffered, we cannot, especially upon the facts set out in the record in this case, say that they are so as a matter of law. The contract was entered into on May 7, 1917, about one month after this country had declared war against the Central empires. No one knew or could foresee what the condition of the grain market would be a month, much less six months, in the future. The general situation must have been in the contemplation of the parties at the time this contract was entered into. It was well known that wheat is a basic, essential commodity. The food and fuel control act was passed by Congress August 10, 1917, and on August 30, 1917, a little more than two weeks before the defendant had a right to require delivery under the contract, the President, by proclamation, fixed the price of the 1917 crop on the basis of $2.20 a bushel for No. 1 Northern spring wheat at Chicago. No doubt this action of the government had a great influence, if it was not in fact directly controlling, as to the price of wheat. See War Industries Board Bulletin No. 9. As was said in Sheffield-King M. Co. v. Domestic Science B. Co. 95 Ohio St. 180, 115 N. E. 1014, having under consideration a contract similar to the contract involved here, “The parties agreed that wheat, the thing from which the flour was to be made, should be the basis upon which to calculate damages. They could, of course, have agreed that the flour should be such basis, but they did not do so. — 402 — That was a matter for them to agree about. They did not fix an arbitrary lump sum which might turn out to be wholly inequitable, but fixed a method, the chief element of which was the price of wheat from which the flour was to be made, a matter not within the control of either.” While in that case it was said that “when the plaintiff proved it had performed the terms of the contract on its part, had purchased the necessary wheat, and showed the damages that had accrued on the basis agreed on, it was entitled to recover,” we think the allegation in the complaint in this case, that the plaintiff was prepared, able, ready, and willing to perform the contract, is an allegation that it had on hand the materials out of which the flour to be delivered to the defendant in this case was to be manufactured ; at least no issue in that respect is tendered by the pleadings in this case. The inherent difficulties of proving the actual damages in a case such as this are such as in practical effect to preclude a manufacturer from recovering damages because of the consequent expense and the disorganization of his business. The removal of auditors, accountants, managers, and foremen from the business of a large highly organized concern during the time necessarily consumed in a trial entails an expense, in excess of recoverable costs, so' great as to prevent in many cases any reimbursement to a manufacturer. Any one who has attempted to establish the amount of actual damages in a case will fully .realize this. Garton Toy Co. v. Buswell L. & M. Co. 150 Wis. 341, 136 N. W. 147, illustrates the difficulty in a comparatively simple case. As was said by Judge Christiancy, this is a case “where, from the nature of the contract and the subject matter of the stipulation, for the breach of which the sum is provided, it is apparent to the court that the actual damages for a breach are uncertain in their nature, difficult to be ascertained, or impossible to be estimated with certainty, by feference to any pecuniary standard, and where the parties — 403 — themselves are more intimately acquainted with all the peculiar circumstances, and therefore better able to compute the actual or probable damages, than courts or juries, from any evidence which can be brought before them.” Jaquith v. Hudson, 5 Mich. 123. Modern business is so managed as to avoid litigation; the tendency is away from litigation — a tendency which should be encouraged in all fair and legitimate ways because it is conducive to the general welfare. Time and effort consumed in litigating questions of damages generally result in substantial financial loss to both sides. Stipulations of parties, therefore, which establish a plain, simple rule of damages, having a just and fair relation to the subject matter of the contract, in cases where the ascertainment of actual damages is difficult, ought, in the public interest, to be given legal effect. U. S. v. Bethlehem S. Co. 205 U. S. 105, 27 Sup. Ct. 450. Where such contracts are entered into, which are fairly within established legal principles, it is not the business of the courts to interfere and attempt to set aside such stipulations, as has often been done with the result that while theoretical legal justice may be attained, as a practical matter justice is denied. There is no reason why courts ..should regard with paternalistic solicitude the situation of a party who has deliberately broken his contract. Contracts- are not made to be broken but to be lived up to, and the loss, if any, in the event of breach, ought to fall on the wrongdoer rather than upon the innocent party. A litigant who is compelled to expend two hundred dollars to recover one hundred dollars damage, no question of fundamental principles being involved, does not feel that he has received justice, but rather that an injustice has been done him. Parties to contracts are, as a rule, very much more familiar with, the subject matter with which the contract deals, the conditions under which the contract is ,to be performed, — 404 — than courts and juries can possibly be, and where they attempt in a fair way to agree upon a method of computing damages in case of breach by either party they are much more likely to arrive at a just result than is court or jury upon a trial. See Sun P. & P. Asso. v. Moore, 183 U. S. 642, 22 Sup. Ct. 240; U. S. v. Bethlehem S. Co. 205 U. S. 105, 27 Sup. Ct. 450; 1 Sutherland, Damages (4th ed.) § 283, p. 842; Knox Rock B. Co. v. Grafton S. Co. 64 Ohio St. 361, 60 N. E. 563. It is suggested thát, because the market price of No. 1 Northern wheat at Minneapolis is made thé basis for computing the' plaintiff’s damages, the contract is therefore void as a gaming contract. Atwater v. Manville, 106 Wis. 64, 81 N. W. 985; Lowry v. Dillman, 59 Wis. 197, 18 N. W. 4; Barnard v. Backhaus, 52 Wis. 593, 6 N. W. 252, 9 N. W. 595. There is, however, not the slightest intimation in the record that the parties at the time of making this contract did not intend to carry it out in accordance with its terms. In fact, every inference to be drawn from the conduct of the parties, both at the time of the inception of the contract and down to the time of its breach, indicates clearly and definitely that it was the intention of the parties to perform it. It is therefore a valid contract. Wall v. Schneider, 59 Wis. 352, 18 N. W. 443. The fact that the great market places of the world are made use of by gamblers in the conduct of an illegitimate and unlawful business does not alter the fact that organized markets are not only proper but necessary under modern conditions. They perform a valuable and serviceable function in the process of distribution, and there is no reason why prices established there may not be made the basis for adjusting contract rights. It is apparent that at the inception of the contract the probable damages which the plaintiff- might suffer in the event of a breach by the defendant would be difficult of ascertainment and uncertain. The parties agreed upon a fair basis of computation, and, while the amount recovered — 405 — is large, great variations in the market price of wheat and flour must have been anticipated by the parties, and in view of all the circumstances the amount recovered is not unconscionable. The contract was in no way a gaming contract, and was therefore valid, and the judgment of the circuit court was right. By the Court. — Judgment affirmed.